India's Capital Goods Sector Braces for Mixed Q2 FY26 with Strong Orders but Varying Growth

India's capital goods sector is projected for a mixed performance in the second quarter of the fiscal year 2026 (Q2 FY26), spanning July to September 2025. While a robust order book provides a strong foundation for revenue growth, profitability and expansion rates are expected to vary significantly among companies.

Key Highlights: * **Order Inflows:** Healthy momentum is anticipated, with CG Power and Industrial Solutions expected to lead with a 27% year-on-year increase in new orders. Hitachi Energy India is projected at 17.8%, followed by Siemens at 11%. In contrast, Thermax might see an 11% decline, and BHEL could face a sharper drop of 29% due to legacy issues. * **Revenue Growth:** Broad-based revenue growth is expected, supported by existing order backlogs. CG Power is forecast to lead with around 36% growth, while BHEL and Hitachi Energy could see 19–20% growth. Other players like Cummins India, ABB, Siemens, and Thermax are expected to achieve mid- to high-single-digit growth. * **Margins:** Profitability is set to be diverse. Hitachi Energy may report a substantial 500-basis-point expansion. CG Power, Cummins, and Siemens could see smaller gains of 60–90 basis points. However, ABB India, Thermax, and BHEL might experience margin pressure due to increased commodity costs and specific project challenges, especially with BHEL's older orders.

Outlook and Factors to Watch: The overall Q2 FY26 outlook is shaped by a strong order book, efforts to control costs, and easing commodity inflation. Key factors influencing performance will include execution efficiency, the pace of private capital expenditure, and the impact of prolonged monsoons on engineering, procurement, and construction (EPC) activities. Valuations in the sector have moderated, though CG Power and Hitachi Energy still trade at premium levels.

Competition: Analyst Harshit Kapadia of Elara Capital warns of increased competition from Chinese manufacturers in the second half of FY26.

Analyst Recommendations: Kapadia's top picks include KEC International, Siemens Energy, Hitachi Energy, KEI Industries, Praj Industries, Kalpataru Power, and Apar Industries.

Impact: This news directly affects the capital goods and industrial sectors in India. Companies with strong order books and efficient execution are likely to outperform. Margin pressures and increasing competition could challenge profitability for some. The performance of these companies is a bellwether for industrial investment and economic activity in India.

Impact Rating: 8/10

Difficult Terms Explained: * **Order Book:** The total value of orders that a company has received but has not yet completed. A strong order book indicates future revenue streams. * **Margins:** The difference between a company's revenue and its costs, expressed as a percentage. Higher margins indicate greater profitability. * **Year-on-year (YoY) growth:** A comparison of a company's performance metrics (like revenue or orders) over a specific period (e.g., a quarter) in one year versus the same period in the previous year. * **Basis Points (bps):** A unit of measure used in finance, equal to one-hundredth of a percentage point. For example, a 500 basis point increase means a 5% increase. * **Private Capex:** Capital expenditure (investment in assets like machinery, buildings) undertaken by private sector companies, rather than the government. It is a key indicator of business confidence and economic growth. * **Engineering, Procurement, and Construction (EPC):** A specialized type of contracting arrangement in the construction industry where the EPC contractor takes responsibility for all activities from design and engineering through procurement, construction, and commissioning of a project.